Commentary

American Airlines Navigates Bankruptcy Filing

It’s like seeing an old friend, the picture of robust healthiness, frail and gaunt. “If it can happen to Benny,” you say to yourself, “who’s immune?”

AMR, the parent company of American Airlines filed for Chapter 11 bankruptcy protection yesterday despite having $4 billion in cash in its coffers. It is
“an abrupt course change” report the Wall Street Journal’s Doug Cameron, Mike Spector and Jack Nicas, for an company that “for
years has resisted the type of court-protected restructuring that allowed other big carriers … to realign costs and find merger partners.”

Chairman and CEO Gerard J. Arpey, who
has long argued against the bankruptcy option, is said to have accepted its inevitably in light of stalled labor talks and rising fuel costs. He resigned in the wake of the decision although the board
reportedly asked him to remain. AMR President Thomas Horton will step into his slot.

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About that $4 billion: "Cash is critical to a successful restructuring in bankruptcy," an attorney for AMR
tells the WSJ. "Problem is, if we waited any longer, we may have adversely affected our ability to successfully restructure this company."

Indeed, American has lost $11 billion over
the last decade, the New York Timesreports, “while falling off its perch as the nation’s largest airline as mergers between first Delta and
Northwest, and then United and Continental, created bigger competitors.”

Analysts generally hailed the move. There’s bankruptcy, and then
there’s bankruptcy. Unlike, say, Borders’ liquidation and shuttering, they seem to believe that AMR’s filing will assure the viability of the company.

This is the other kind
of bankruptcy: the strategic use of the law to, among other things, conduct labor negotiations with a bigger cudgel. The Wall Street Journal has a chart showing American at the top of a list
of carriers ranked by “labor expense in cents per available seat mile.” Its pilots, flight attendants and baggage handlers get 4.1 pennies per seat mile. Southwest is No. 2 at 3.6 cents;
JetBlue is No. 6 at 2.5 cents. That all adds up to big bucks -- $800 million more than competitors annually, according to the airline (although unions dispute the math).

Look for the labor
issue to be front and center in coming months. “It wasn't enough that the Allied Pilots Association would reject a contract offer with job security, pension protection, annual raises and a
signing bonus. Negotiators also wanted management to eat some humble pie,” writes the Fort Worth Star-Telegram’s Mitchell Schnurman. He faults
the pilots for taking a Thanksgiving break from negotiations and cites the wisdom of Gordon Bethune, former CEO of Continental, who told CNBC: "This is the inevitability of an irrational
workforce."

Schnurman predicts that “thousands will lose their jobs … facilities will be closed and routes dropped, and some communities will suffer.”

The AP’s
Scott Mayerowitz writes that American “used to bill itself as ‘something special in the air,’ and it was…. But it was disastrously behind
on one thing -- recognizing that its finances were unsustainable.”

"It reminds me of a time when people got dressed up in their Sunday best to hop on a plane and fly around the world," a
private equity executive with more than 500,000 lifetime miles with American tells Mayerowitz.

But this is an age of sweatpants, T-shirts and Internet booking when fealty to a particular
carrier has gone the way of paper tickets. American’s groundbreaking AAdvantage frequent-flyer program yields no more miles than a Master Card does at the supermarket. (By the way, those miles
you’ve been saving for that business trip to Honolulu are safe, the airline says. The New York Times’ Michelle Higgins runs down other possible impacts on fliers, including service cuts.)

American is no longer universally seen as a little bit classier than other carriers.
Opinion runs the gamut from “appreciative to ‘cattle cars’” in another AP piece that surveys passengers’ reaction to the news.

Says one Mike Baird of Westbury, N.Y., at LaGuardia: “Flying on every airline has changed. They cut everything. The legroom is smaller, seats are smaller. They pack you in
tighter.”

In its heyday under Robert Crandall, who looked like he could crack a walnut with a gaze of his eyes, American wasn’t perceived as
being like “every airline.”

In the end, the company may emerge stronger from the experience “but in the short term it might delay a much-needed rebranding exercise,” reportAd Age’s Rupal Parekh and Laurel Wentz. They report that Interpublic Group’s FutureBrand is in the final stages of formulating a plan to
revamp the airline's image. That will probably be put on hold.

“For the time being, there is likely to be little new activity for any of American's agencies except for public relations
agency of record Weber Shandwick,” Parekh and Wentz write, “which could get involved in crisis management and reassuring the customer base that their flights and frequent-flier miles are
safe.”

It's beyond time for investment into rails. Due to less flights available, rising costs to fly causing more people not only in the air biz, but related businesses to lose jobs and income. Transportation and communication are the forces behind commerce and growth. How do you say airlines - flying in Chinese ?

Bankruptcy is the result of bad leadership. Very few companies that file bankruptcy are truly viable, much less on the road to sustainable profitability. AMR has a business model that has resulted in extrenely unhappy customers, besieged employees (and managers) and now wiped out investors. As Forbes magazine headline "Yes AMR, Bankruptcy IS Failure" http://onforb.es/twAxFk